09/10/2010 revised
A Great Thinker Knows Sunk Cost
I'll take up the word of Confucius. As you know, Confucius is a great Chinese thinker. In East Asia, he has greatly influenced the minds and thoughts of the people. Hearing his name, I always recall the following words:
At fifteen my heart was set on learning;
(十五向學)
At thirty I stood firm;
(三十而立)
At forty I had no more doubts;
(四十而不惑)
At fifty I knew the mandate of heaven;
(五十而知天命)
At sixty my ear was obedient;
(六十而耳順)
At seventy I could follow my heart's desire without transgressing the norm.
(七十而從心欲，不踰矩)
I believe that he had a special ability to know all the things governing the world, and that he was not only a philosopher but also an economist.
A philosopher clears up the laws governing the world and the society, whereas an economist finds out the ways of governing the economy and the market.
Let me show you the reason he was an economist: He knew the idea of sunk cost. Sunk cost is the one that has been committed and cannot be recovered. Most economists tell us to forget a sunk cost when we begin to do something new, because we cannot avoid it once we incur it.
The following word has been said for long in the Western society, "Don't cry over spilt milk"., whereas our Confucius gives us the next one, “Forget injuries, never forget kindnesses.” I like it better. This is the Eastern version of spilt milk.
7 comments:
Taro, I like this post. However, I don't agree that the bromide about spilt milk is an illustration of sunk costs. A sunk cost is a cost already incurred such that you must weigh incremental gains of what you are doing against incremental costs. Costs already incurred don't matter. Even a cat wouldn't spill incremental milk after inadvertently spilling the first batch of milk.
Unrleated to this post do you have any last minute predictions on whether the BOJ raises rates in a couple hours?
While Confucius receives well-deserved recognition for tacitly articulating the notion of sunk costs, it's much less known that his support of familial loyalty is parallel to the quantity theory of money.
Dear a cat-loving anonymous,
Thank you for your nice pointer. Oh, I see. A sunk cost has already incurred as long as I place a cup of milk higher than the price. If I spill a cup of milk and still want to drink it, I should do it without thinking of spilt milk. It will never be back again, after all.
In this point, I guess that spilt milk is just like a failure of love. If I lost love, should I be in the depths of despair? No. I should forget that lost love and take the next step to a new love as long as I like to go about with a pretty girl. So Confucius is right. He tells us to forget past love and never to forget those happy days she offered.
If you know, please let me know an alternative expression of sunk cost.
Dear a quantity-theory anonymous,
Thank you for your interesting post. What I cared in your comment is that his support of familial loyalty is parallel to the quantity theory of money.
What are you implying? Had Confucius known the quantity theory ever before David Hume was born? Do you want to say about the influences of Confucianism on the thoughts of later thinkers just like those of Hume on the thoughts of monetarists?
If you have some time, I would be happy for you to talk to me about it in more detail. Thank you.
reply for 'If you know, please let me know an alternative expression of sunk cost.'
I know a story of ancient China. A citizen of the Sate of Chu lost a belonging one day, but he doesn't feel any unhappy about that. Then people ask him why, he says ' I lost it but it means another citizen of our state got it'. Confucius comments that it's better to ignore the natinality.
so, one person loses, another gets.
yoo,
Thx. I didn't know that. You had me have a nice story, didn't you?
As a whole nobody lose, but just some people get something and others don't.... It's kind of zero-sum game(constant sum game).
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